Should I extend my loan?

jamesd147_2

I took out a loan with Citi Financial 6 months ago for £8000 at an APR of 23.9 - monthly repayments £226.

They have just called me and said they can reduce my APR by 6% if i borrow an extra £500. They have said that if I do the new amount over the 4 and a half years i have left then my repayments would be about the same as they are now.

I also owe about £4200 on a credit card which is at 5.95% for the life of the balance. I would use the extra £500 I get from Citi to pay off part of this.

It seem to make sense to me to do it this way, but thought i would just check with you guys that it is a good idea.

jamesd147_2

I know it is something they sell their loans on. I guess they are hoping I will take out more then £500 (this is the min, I can borrow upto another £3000.)

nickelodeon

No It's Not

chevalier

have a look at the snowball calculator on https://www.whatthecost.com . Put in your current loan and interest rate and see how much interest you will pay. Then add the extra £500 in and the new interest rate and see how much interest you will pay then. I think you will find that it is substantially more than you would pay if you didn't take the extra debt.
chev

nickelodeon

Sorry, submitted that half way through typing!
With Citi offering 6% off the APR the APR on the loan would be 17.9% which is a LOT more that the 5.95% you are paying on the credit card, so you would be moving debt from 5.95% to 17.9% so no I don't think it's a good idea.

jamesd147_2

But I would be reducing the APR on the rest of my (much larger) loan by 6%, even though I am transfering some away from the lower rate.

nickelodeon

Ok, I see the benefit of that, but just worried that you will end up having to pay more in the long run despite the reduction in interest rate. Especially as they say they are reducing the rate but you will still have to pay the same amount for the same length of time!
Are you allowed to make overpayments, could you take the £500 get the rate reduced and then pay it back? or put it in a savings account until you can make an overpayment?

CLAPTON

as you tell the story and if there are no other conditions or costs then it seems better than your current situation because as you say although you are shifting 4,200 of debt from 5.95% to 17.9% you are also shifting about 7500 of debt from 23.9% to 17.9%.
So unless there are any other conditions it is better than your current situation.

However, is there any way you can refinance the loan as 23.9% or even 17.9% is a pretty high rate.

RAS

Also

If you take the extra £500, what is to stop them increasing the APR later?

Still cannot see why they are offering this?

RAS

???

Settlement fee/penalty on exisiing loan plus new set of fees on new loan??

plus more onerous conditions?

Or fixed rate to variable?

chevalier

Just read the other thread. How can this be even legal? Thanks for the advice, will steer clear.
chev